Reimbursing employees' education expenses

Naturally, most employee training occurs in-house. But area colleges and trade schools can also help fulfill your employee education and professional development needs. And if you reimburse employees for their expenses at these institutions, you and your employees may be able to save valuable tax dollars.

Offer a fringe benefit

Payment of an employee’s expenses results in taxable wages subject to income and payroll taxes unless the payment is eligible for exclusion. Reimbursements and direct payments of job-related education costs are generally excludable from workers’ wages as working-condition fringe benefits. This means not only that they’re tax-free to the employee but also that you don’t have to withhold income tax or pay payroll taxes on them. Furthermore, you can still deduct these costs, but as employee education expenses as opposed to wages.

To qualify as a working condition fringe benefit, the education expenses must be ones that employees would be allowed to deduct as a business expense if they’d paid them directly and weren’t reimbursed. Basically, this means the education must relate to the workers’ occupations and not qualify them for new jobs. There’s no ceiling on the amount your workers can receive tax-free.

Discover the hidden advantage

A “hidden” advantage of reimbursing education costs is attracting new hires and retaining them. The labor markets in many industries are competitive right now, so it’s important not to overlook ways to differentiate yourself from the competition. Moreover, keeping an engaged, well-trained staff in place enables you to avoid constantly enduring the high costs of hiring.

Also bear in mind the Millennial perspective. Prospective employees roughly between the ages of 18 and 35, so-called “Millennials,” make up a significant portion of the labor market now. This generation has its own distinctive traits and preferences toward working — one of which is a need for ongoing challenges and education, particularly when it comes to technology.

Keep them engaged

By reimbursing education costs as a fringe benefit, you can keep your staff well trained and engaged while saving taxes